Zero Percent Balance Credit Cards

by Lance

Credit has been used to make purchases for centuries, however it wasn’t until the  the 1970’s that the charge cards we know today became available and popular among the public sector.  At that time, consumers were charged an annual fee for the privilege of having credit.  In addition to paying an annual fee, most lenders offered a standard interest rate in the high teens for everyone regardless of credit worthiness.  Over the years we have seen many changes within the industry with more on the way in upcoming months.  One of those changes involves the introduction of zero percent interest credit cards.  Here we will learn more about the zero percent credit card.

What Are Zero Percent Balance Credit Cards?

Credit cards are a multi-billion dollar per year industry for the banks that issue credit to consumers.  Banks make their money on the interest they charge to consumer who use credit.  As the credit card industry became more competitive, many banks began introducing zero percent credit cards to lure consumers from credit cards that charge a higher interest rate.  The strategy works well and many consumers can benefit from using zero percent interest credit cards properly.  Most zero percent balance credit cards are issued for a temporary period that expires within a few months.  Once the introductory period has expired, the terms and conditions of the credit card will change based on the original contract.

How Can Zero Percent Balance Credit Cards Be Used?

Most consumers find zero percent credit cards tempting in that they have an opportunity to either transfer higher interest balances to a new card with no interest or make new purchases without having to pay interest during the introductory period.  When used correctly, zero percent credit cards can be a great tool to reduce your debt or purchase a big ticket item without paying high interest fees in the first few months after the purchase.

The Dangers Of Zero Percent Balance Credit Cards.

As many consumers already know, the credit card industry is undergoing many changes as a result of new rules and regulations.  The number of credit cards offering zero percent interest has dropped considerably in the past two years, however there are still offers available for those with excellent credit.  It is important for consumers considering zero percent credit cards to carefully read the terms of the credit card contract before applying.  While there are many benefits to using a zero percent interest credit card, there are not without negative consequences.  The biggest danger of zero percent credit cards is dealing with the higher interest rate once the introductory period has expired.  Consumers who make purchases and fail to pay off the balance during the introductory period often face a much higher interest rate for the remainder of their contract.  The same theory applies to those who transfer a large balance from a higher interest credit card.  Unless you are certain you can pay off the balance of your card, either purchases or transferred balances, you may end up paying more after balance transfer fees and future interest is applied.

Zero percent credit cards can offer consumers a great way to save money if used properly.  As with all credit card contracts, it is important to read and understand the terms and conditions before using any new credit card.

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{ 4 comments… read them below or add one }

1 The Rat

I think 0 percent or low interest credit cards are often overlooked by many and they can offer the individual many advantages if used properly.

For example, transferring debt from a credit card to a lower interest line of credit can make sense when making bigger purchases in order to get reward points AND lower interest if you need a bit of time to pay things off. Well, with lowinterest credit cards, you can also add this into the mix as well, or just simply take out the lower PLC middle-man completely, which can often run you prime + 2.

Despite the limited time that is often available for the low interest, if management properly, the few months you have can be just what you need for strategic purchases. I recently bought a snowmobile, paid it on my Aerogold visa, and dumped the debt on a lower interest PLC and paid if off after a month or two. The same thing can work with the low interest card if properly planned.

Great post.

2 youngandthrifty

Agree! Though I haven’t taken advantage of this myself. The only thing you need to be really cognizant of is the expiry date of the 0% interest.

3 Bank Guru

I like how you presented the positive and negative sides of a zero interest credit card. The limited time constraint with the card, makes it appealing to get around paying a couple months interest on another card. Especially if you are tight on cash.

4 Shevy

I’ve never received an offer for a 0% credit card but I do make use of 0% payment plans at Home Depot. If you buy more than $299 at any one time and charge it to your HD card you automatically get a 6 month 0% payment plan. And a few times through the year they’ll offer 3 or 4 days where you get a full *year* to pay at 0%.

You really have to watch the end date on these, however. They accrue interest (at 28%!!) all along but don’t charge you interest if you pay it off in time. Miss that end date by even a day though and you have to pay *all* that accrued interest! I used to plan to put the money away, fail to do so initially and then scramble in the last couple of months to pull the money together for a day or 2 before the due date.

Now, I figure out how much I need per month and *pay it*. It’s nice to watch my balance going down and know that I’m only going to have to cough up $100 or so to pay it off (unlike the time I needed $700 and really had to push to do it). But I’ve never missed paying one on time!

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